Opening a Stocks and Shares ISA today and buying FTSE 100 shares may not produce a quick return for investors. The index faces a period of great uncertainty – as evidenced by its recent market crash.
However, over the long run, a recovery from its current low level seems highly likely. With a Stocks and Shares ISA offering tax efficiency, simplicity and low costs, now could be the right time to start taking advantage of the FTSE 100’s low valuations and rebound potential.
Stocks and Shares ISA
A Stocks and Shares ISA is a highly accessible account that can be opened online in a matter of minutes. In terms of how it operates, it is little different to a bog-standard share-dealing account. Normally, the same range of shares are available and the platform it uses is often identical to that of a share-dealing account. However, a Stocks and Shares ISA offers tax efficiency that could boost your returns in the long run.
For example, no capital gains, dividend or income tax is charged on amounts invested through an ISA. Since you are allowed to receive dividends of only £2,000 outside of an ISA each year before tax is levied, in the long run, investing through an ISA could improve your financial prospects – especially if you rely on FTSE 100 dividends to fund your retirement.
Furthermore, ISAs offer the capacity to withdraw funds whenever you choose. You can invest up to £20,000 per year in an ISA, while the administration costs are often less than £1 per month. As such, they are likely to be affordable for almost all investors.
FTSE 100 opportunities
Investing in FTSE 100 shares through an ISA may not seem to be a shrewd move at the present time. The index continues to experience a highly challenging period that could realistically last for many more months. Therefore, investing today carries the risk of experiencing paper losses over the short run.
However, long-term investors could generate high returns from FTSE 100 shares. Many of the index’s members currently trade on exceptionally low valuations. In some cases they are deserved. But negative investor sentiment towards the stock market means that a number of high-quality businesses are trading on low valuations too.
The track record of the FTSE 100 suggests that it is very likely to recover from its present lows. Just as in previous bear markets, this outcome may not seem plausible when coronavirus is sadly continuing to cause a major human cost. However, the FTSE 100 has always produced new record highs after its past bear markets, and investors who purchase shares during the darkest days of a market crash can be among those who benefit the most in the long run.
As such, now could be the right time to buy a range of FTSE 100 shares in an ISA. They could improve your financial future.